2025 (11) TMI 380 - AT - FEMA

Appeal dismissed; confiscation under s.3(d) FEMA cannot be sustained as seizure interrupted, withheld Rs.89,70,000 adjusted and refunded

Sh. Ravi Goenka, Sh. Vasudev Goenka Versus Directorate of Enforcement, Mumbai and Union of India Versus Ravi Goenka & Ors.

AT dismissed the Department's appeal and upheld the Special Director's finding that confiscation under s.3(d) FEMA could not be sustained because the ... Confiscation of the amount seized at the time of search of the premises - contravention of Section 3(c) and 3(d) of the Foreign Exchange Management Act, 1999 - impose penalty by invoking 13(2) - Effect of financial transaction in India is for consideration for acquisition or creation or transfer of a right to acquire any asset outside India by any person - period of more than 20 years has already passed by now and the appellant is intended to buy peace - HELD THAT:- The fact on records shows that no doubt there was attempt to transfer the money aforesaid but before it could take place, the amount was seized by the Enforcement Directorate and thereby it could not be transmitted to Shri Shaikh Sajid Ibrahim or anyone to make a case for contravention of Section 3(d) of the Act of 1999 for the aforesaid amount. The appeal filed by the department is quite sketchy and does not make out a case to cause interference and otherwise we do not find any error in the impugned order and accordingly appeal filed by the Department is dismissed. We find an element of admission of the respondent that the transaction could not take place on account of intervention of the team made search of the premises. The fact remains unless transfer takes place a case for contravention of Section 3(d) of the Act of 1999 would not be made out as per the finding recorded by the Special Director and therefore, we do not find a case to cause interference in the order passed by the Special Director refusing to confiscate the amount of Rs. 89,70,000/-. We find no reason for the respondent to withhold an amount of Rs. 89,70,000/- for 20 years without an order in their favour. It should have been released. In any case looking at the concession recorded by the Ld. Counsel for the appellants, Shri Ravi Goenka and Shri Vasudev Goenka we are not causing interference in the appeals preferred by the appellants against the penalty of Rs. 25,00,000/- each on them and at the same time direct the respondent to adjust the aforesaid sum in the amount withheld by them i.e. Rs. 89,70,000/- and refund the balance amount to the appellants- Shri Ravi Goenka and Shri Vasudev Goenka. All the appeals are disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the seized amount of Rs. 89,70,000 constitutes a 'financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India' within the meaning of Section 3(d) of the Foreign Exchange Management Act, 1999, thereby justifying confiscation. 2. Whether an attempt or preparation to effect a transfer, where the transfer was prevented by enforcement intervention before any payment or credit/change of possession occurred, falls within the ambit of Section 3(d) (i.e., whether attempt liability under the earlier FERA regime survives under FEMA). 3. Whether the penalties of Rs. 25,00,000 imposed on each noticee under Section 13(2) for alleged contravention of Section 3(d) merit interference by the Tribunal, in light of the finding on confiscation and the appellants' concession regarding adjustment of penalty against the seized amount. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the seized sum constituted a Section 3(d) financial transaction justifying confiscation Legal framework: Section 3(d) prohibits entering into any 'financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India by any person.' 'Financial transaction' is defined to include making any payment to or for the credit of any person, receiving any payment for by order/on behalf of any person, drawing/issuing/negotiating bills/promissory notes, transferring a security, or acknowledging a debt. Precedent treatment: No judicial precedents were relied upon in the impugned order; however, the distinction between attempt-based liability under the former FERA regime and the substantive scope under FEMA was expressly noted and treated as significant. Interpretation and reasoning: The Tribunal accepted the Special Director's factual finding that although two persons had come to collect the currency on instructions from abroad, no transfer or handing over of the seized amount actually occurred because enforcement officers intervened during the search. The statutory prohibition in Section 3(d) was interpreted to require a financial transaction as defined (i.e., an act of payment, crediting, receiving payment, transfer, negotiation, etc.). Mere preparation or attempt, without completion of any such act, does not satisfy the statutory element of 'enter into any financial transaction.' The Tribunal endorsed the view that an aborted attempt-where nothing of the nature of a payment/credit/transfer actually took place-does not supply the requisite factual foundation for confiscation under Section 3(d). Ratio vs. Obiter: Ratio - The Court's authoritative determination is that, for confiscation under Section 3(d), there must be an actual financial transaction as defined in the statute; an unconsummated attempt, interrupted by enforcement action, does not constitute a Section 3(d) contravention justifying confiscation. Obiter - Observations distinguishing FERA's treatment of attempts from FEMA's lack of attempt liability are explanatory but reinforce the core ratio. Conclusions: The Tribunal upheld the Special Director's refusal to confiscate the seized sum of Rs. 89,70,000, finding no completed financial transaction within the meaning of Section 3(d) and therefore no statutory basis for confiscation. Issue 2 - Whether attempt or preparation to transfer is punishable under Section 3(d) (FERA v. FEMA distinction) Legal framework: Under FERA, attempt to contravene certain provisions was actionable; FEMA's statutory text was contrasted to show absence of equivalent attempt liability in Section 3(d). Precedent treatment: The Tribunal treated the historical distinction as directly relevant to construing liability under FEMA and relied on the absence of an explicit attempt provision in FEMA to deny attempt-based guilt. Interpretation and reasoning: The Tribunal read Section 3(d) strictly to require an actual financial transaction and rejected the contention that preparatory acts or readiness to effect a transfer (e.g., persons present to collect cash, possession of bags) equate to the statutory act of 'enter[ing] into any financial transaction.' The Court found the factual admission that enforcement intervention precluded any transfer dispositive: absent the consummating act, the statutory prohibition was not engaged. Ratio vs. Obiter: Ratio - Attempt or preparation, standing alone and absent a completed financial transaction as defined in Section 3(d), does not attract confiscation or the substantive contravention under FEMA. Obiter - Historical comparison to FERA was explanatory and used to distinguish past liability regimes. Conclusions: The Tribunal concluded that, under FEMA, attempt liability is not available where the transfer was prevented before any defined financial transaction occurred; thus, confiscation or penalty based solely on attempt was not justified. Issue 3 - Sustainment of penalties of Rs. 25,00,000 each imposed under Section 13(2) for alleged contravention of Section 3(d) Legal framework: Section 13(2) (penalties) penalizes contraventions of Chapter/sections such as Section 3(d), subject to making out of substantive contravention as required by the Act. Precedent treatment: No specific precedents were invoked by the Tribunal to alter the ordinary principle that penalty must rest upon established contravention; the Tribunal relied on its primary finding that no Section 3(d) transaction had taken place for confiscation purposes. Interpretation and reasoning: The Tribunal noted that the Department had imposed penalties despite simultaneously refusing confiscation on the ground that no financial transaction occurred. The appellants' counsel expressed a readiness to have the penalties adjusted against the withheld amount and sought disposal on that basis. Given the Department's failure to establish a completed contravention sufficient for confiscation, and having regard to the appellants' concession to adjustment, the Tribunal declined to interfere with the penalty orders on merits but directed adjustment of the penalties against the seized amount and refund of the balance. Ratio vs. Obiter: Obiter/Practical disposition - The Tribunal's non-interference on the penalties was tied to the parties' concession and the practical direction for adjustment and refund; the Court did not undertake an independent detailed adjudication of the legal correctness of the penalty quantum beyond finding no reason to disturb the orders given the consensual adjustment. The more authoritative ratio remains the requirement of a completed financial transaction to sustain enforcement action under Section 3(d). Conclusions: The Tribunal (i) did not disturb the penalty orders on the appeals of the noticees, given the appellants' concession and the practical direction to adjust the penalties against the seized amount, and (ii) directed the authority to set off Rs. 25,00,000 against the seized sum for each noticee and to refund the remaining balance forthwith. Appeals by the Department against non-confiscation were dismissed. Cross-references and Practical Outcomes 1. Issues 1 and 2 are interlinked: the finding that no completed 'financial transaction' occurred (Issue 1) follows the legal conclusion that mere attempt/preparation is not actionable under FEMA (Issue 2). 2. Issue 3's disposition is pragmatic and contingent on the Tribunal's conclusions on Issues 1-2; the direction to adjust penalty sums against the withheld amount flows from the Tribunal's refusal to allow confiscation and the parties' positions.